What Is a Stag?
Stag is a slang term for a short-term speculator—a day trader, for example— who attempts to profit from short-term market movements by quickly moving in and out of positions. Day traders, or stags, typically require access to a lot of liquid capital to fund their positions and make a living. This is because they may be attempting to gain returns on small price movements multiple times each day or with multiple positions at the same time.
Stags will often use techniques associated with technical analysis or tape reading as the basis for their trading decisions since long-term fundamental analysis typically does not help when looking to make quick trading decisions over the course of hours or minutes.
- A stag refers to a short-term speculator—such as a day trader—who attempts to profit from short-term price moves.
- Stags can be contrasted with bulls or bears, both of which have a long-term view of the market.
- These traders typically require significant amounts of capital in order to capitalize effectively on small price moves and make a living. The U.S. minimum required balance in a stock day trading account is $25,000.
- Stags use several strategies and can change from bullish to bearish, or vice versa, in seconds as short-term trading conditions are often changing.
- They may engage in IPO day trading on the first issue day in order to capitalize on volume and volatility.
Understanding the Stag
The term stag refers to a speculator who buys and sells stocks in short timeframes to make quick profits. A stag trader looks for conditions where the price of a stock (or another asset) is likely to have a large price move either higher or lower, and then positions themselves accordingly to take advantage of the ensuing price move.
Another strategy or tactic that a stag may employ is to be more of a market maker. In this case, a stag may look for stocks or assets that are relatively stable but will attempt to buy near support or sell near resistance, or capture the spread, based on the assumption that the price won't move much and they can make a profit off ranging or choppy price movements.
Traders engaging in stag strategies include both individual traders and institutions. In order to profit from the small short-term price movements associated with day trading, traders will generally buy large blocks of stocks. In order to day trade stocks in the U.S., the minimum required account balance is $25,000, although most day traders start out with and utilize more.
Bulls, Bears, and Stags
Bullish and bearish are the two most common terms used to describe the thought processes and actions of an individual investor. These mentalities are based on the intentions of investors who seek to gain from market movements.
A bullish trader is one who believes the price of an asset will rise. Buy-and-hold strategists are normally bullish investors. Bearish traders, on the other hand, are those who believe the price of an asset will fall.
While a long-term investor may be perpetually bullish, always looking for something to buy and assuming the stock will always rise over time, the stag investor may rapidly change from bullish to bearish, and vice versa. On any given day, an asset may rise or fall, and even when an asset is rising overall there will be periods when it falls. Since the stag is only in trades for a short period of time, they may trade many of these price oscillations higher and lower.
Stag Trading Tactics
There are many different ways to day trade. Some traders look for an asset that is trending higher, and then attempt to buy during pullbacks, or when the price moves above a prior swing high. The same concept can be applied to downtrends, looking to enter short when the price makes a new swing low or pulls back and then starts to drop again.
Other traders may look for ranging stocks or assets, attempting to buy near support and sell near resistance. They are assuming the asset's price will remain relatively stable and not move significantly beyond support or resistance.
Some traders watch for breakouts from chart patterns which could indicate a sharp price move in the asset. Other stag traders watch for gaps at the market open. They then decide if they will fade the gap, assuming that the gap will fill over the course of the day, or if they will trade in the direction of the gap, assuming the price will continue to move in the gap direction.
In all cases, the trader is attempting to profit from intra-day price moves, and will typically take one or more such trades in a day, or possibly many such trades.
Stags and Initial Public Offerings (IPOs)
An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance. In addition to the demand for a company's shares, there are several other factors that determine an IPO valuation, including industry comparables, growth prospects, and the narrative of a company.
Sometimes the actual fundamentals of a business can be overshadowed by its marketing campaign, which is why it is so important for early investors to review a company's financial statements; part of the process of launching an IPO is that companies are required to produce balance sheets and income and cash flow statements for the public.
One challenge of investing in IPOs, therefore, is that the companies launching usually don't have a long history of disclosing their financial information and they don't have an established trading history, so analyzing them using conventional methods can be impossible.
This uncertainty around a new IPO listing creates both interest and volatility from investors. It is also attractive to day traders and stags. These traders will attempt to play the volatility for short-term profits and not hold much or any position in the IPO after the first day of trading.
Sometimes a stag is able to acquire shares of an IPO before it trades publicly, in which case they will attempt to sell back their shares in the open market soon after trading in the name begins.
Example of a Stag Trading Strategy
Trend-based strategies are popular among stags because trends allow the traders to focus on trading in a trending direction and potentially profit if the trend continues. Let's look at a historical example to illustrate the concept.
The following chart of Momo Inc. (MOMO) shows a gap higher followed by an initial price surge. The price soon falls back below the volume weighted average price (VWAP) and the open. After the failure to move higher and the drop below the open, a trend trader could look to get short on the next pullback and all subsequent pullbacks, assuming the downtrend starts and remains intact.
Indicators, such as the stochastic oscillator, could be used to aid in making trading decisions. In this case, a bearish crossover with the signal line near overbought territory could be used as a signal to get short.
When a stock is trending, this style of entry can work well. In the example, multiple short entry signals were given, all of which provided the opportunity for profit. Such an entry strategy runs into problems when the trend slows down or the price action becomes more choppy. This may result in multiple false signals or the price not proceeding in the expected direction after a signal.
Because of this, stags don't typically rely on only one tool or form of analysis. They look at overall market conditions, read price action, and they may utilize one or more technical indicators, tape reading skills, or statistics to aid them in their trading.
In addition to an entry strategy, stag traders will also have exit rules which tell them when to get out of profitable trades and losing trades. They also have position size rules, letting them know how big or small a position they should take on a particular trade setup.
Frequently Asked Questions
What Does Speculating in the Market Mean?
Speculators are traders who take a directional position in the market, often with a short time horizon. The other main difference between speculating and investing, aside from time horizon, is that there is more often risk involved in speculating.
How Does a Stag Compare to a Bull or a Bear?
In general, a trader can be described by their market outlook. A bull is one who thinks the market will rise and purchases stocks taking long positions. A bear, in contrast, suspects prices will go down and instead sells assets to take short positions. The stag operates mainly in primary markets, investing in private placements before a company goes public via an IPO. The stag helps promote the new issue and creates buzz. A stag may also refer to a "jobber," British slang for a short-term day trader.